Russian economy will not reach pre-war levels until 2030

Wladimir Putin

The country of the Russian President has been suffering badly from the war in Ukraine and Western sanctions.

(Photo: via REUTERS)

Berlin According to the forecast by the Scope rating agency, the Russian economy will only reach the level it was before the invasion at the end of the decade Ukraine return to the level reached. The Kremlin did, with the help of the central bank the unexpectedly high export earnings used to study the immediate aftermath of war and of western sanctions on the domestic economy, according to the study available to Reuters on Friday.

“But the longer-term outlook has deteriorated,” writes Scope analyst Levon Kameryan. It will therefore probably take the Russian economy until around 2030 to return to pre-war levels.

By the end of next year, gross domestic product will be around eight percent below the 2021 level due to western sanctions. After that, the growth potential will drop from the 1.5 to 2.0 percent achieved before the war to 1.0 to 1.5 per year. “It is far below that of most Central and Eastern European countries, where the standard of living is significantly higher on average,” according to the European credit rating agencies.

The war in Ukraine and Western sanctions are exacerbating Russia’s longstanding economic deficits. The outflow of capital, for example, will accelerate.

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In the first quarter of 2022 alone, around $64 billion in private capital flowed out – four times as much as a year earlier. “We expect the private sector to eject more capital this year Russia than the $152 billion net in 2014 when Russia annexed Crimea,” the experts said.

“Highly Dependent”

At the same time, productivity growth is being hampered by limited access to Western technology. “Russia is highly dependent on imported components for machinery and electronics, computers, automobiles and pharmaceuticals,” the study found.

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The share of foreign added value is more than 50 percent, about half of which comes from the EU United States, the United Kingdom, Canada and Japan were eliminated. “Such a high proportion of foreign-made goods cannot simply be replaced by Chinese imports or local alternatives,” it said.

At the same time, negative demographic trends accelerated, “particularly the decline in the working-age population.” Many young, well-educated Russians left the country after the February 24 invasion of Ukraine. “Estimates are in the hundreds of thousands,” says Scope.

Russia must also expect to get less from oil and gas, since it diverts its energy exports to India and China, but has to grant significant discounts there.

Scope believes that far-reaching reforms are needed to free the Russian economy from its long-standing dependence on the commodities sector. “Such reforms require a reduction in the role of the state in the economy and the promotion of the private sector,” the conclusion reads. But that can hardly be reconciled with the increasingly authoritarian approach of the current government.

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